Share

The US Supreme Court declined yesterday to hear Argentina's appeal over its battle with hedge funds that refused to take part in its debt restructurings, a move that risks sending Latin America's third-largest economy into a fresh sovereign default.

The high court left intact lower court rulings that had ordered Argentina to pay US$1.33 billion to the so-called holdouts who refused 2005 and 2010 debt swaps in the wake of the country's catastrophic 2001-02 default on US$100 billion.

Argentina has previously refused to pay up. If it sticks to that position, US authorities could prevent full payment to creditors holding restructured bonds even though the country is able and willing to pay them.

This could result in a default as early as June 30, when payments are due on discount bonds governed by New York.

"It's a very damaging scenario for Argentina," said Marco Lavagna at Ecolatina consultancy, noting that how lower courts implemented their rulings was key to the situation.

"Maybe something could open up there and allow for negotiation," he said.

Argentina hinted last month it might consider negotiating with holdouts but could not do so until next year when a clause in its debt swaps prohibiting it from offering holdouts better terms expires.

The government was not immediately available for comment yesterday but the state-run news agency Telam said President Cristina Fernandez would deliver a televised address last night.

Argentina wants to avoid making full payment to holdouts led by hedge funds Aurelius Capital Management and NML Capita, a unit of billionaire Paul Singer's Elliott Management Corp. It said that doing so would open the door to claims from other holdouts that could be worth as much as US$15 billion.

Creditors holding about 93 per cent of Argentina's bonds agreed to participate in the two debt swaps in 2005 and 2010, accepting between 25 and 29 cents on the dollar. On the issue of paying bondholders, Argentina had said in its most recent court filing that the government would struggle to pay the bondholders in full while also serving its restructured debt.

The bondholders dispute that assessment, saying in their own court filing there was evidence presented in lower courts that Argentina could afford to pay.

This article appeared in the South China Morning Post print edition as: